In a management process for a multi-task/multi-project business operation, many complex and often interdependent decisions are routinely required in order to properly manage the workload and the resources of the business. For example, workload schedules must be projected and managed, production must be tracked, resources must be monitored to maintain availability, internal resources must be shared in a fluid manner between operational groups, and decisions regarding outsourcing of some or all of the pending work may have to be performed in order to maintain cost efficiency.
More particularly, such business operations may include, for example, laboratory operations in the environmental or pharmaceutical field, where such a parameter as workload input to multi-tasks and/or multi-projects may be a critical aspect of successfully running the laboratory. In such an instance, other parameters may be used to approximate the appropriate level of work input. For example, periodic revenue may be used to approximate the required “work effort” to complete the scheduled workload. However, the approximation may be affected by fluctuations in the market pricing of the services, thereby causing inconsistencies in the analysis of the process. In addition, no direct measure of work effort is used or becomes available for subsequent application to workload and resource management functions.
In contrast to a simple approximation for managing workload and process resources, other processes for workload management may require the creation of “Work Breakdown Structures” (WBS), wherein a detailed understanding of the interdependencies and relationships of all tasks, projects, and resources is required in order to effect a management process thereby. However, such WBS process are often cumbersome and require inordinate and impractical amounts of overhead to apply in complex multi-task/multi-project operational environments.
The complexity of managing a multi-task/multi-project operational environment can be illustrated by example where a Contract Research Organization (CRO), such as an independent pharmaceutical testing laboratory or, more generally, a service provider, develops a management process in light of competition from other CRO's and the pricing of outsourced projects by the pharmaceutical companies, or sponsors, as the result of such competition. In such an instance, the revenues for the CRO may be analyzed through a relationship with the direct outsourcing cost for the pharmaceutical company. Accordingly, companies, or business units within a company, that provide complex services are typically fixed-cost entities, wherein the majority of the business costs are independent of the work volume or the amount of service provided. An example of such a business model is shown, for example, in FIG. 1.
In a primary analysis, a CRO experiences fixed costs which typically include, for example, equipment depreciation, personnel costs, and facility costs. These fixed costs accrue regardless of whether a service is provided. When the CRO provides a service, such as an outsourced project from a pharmaceutical company, revenue is accrued, in addition to corresponding variable costs comprising materials and supplies necessary to perform the service, as the volume of work increases. As revenue and variable costs are analyzed as a function of the work volume, it is apparent that the accrued revenue increases at a greater rate than the variable costs, wherein the slope of the revenue line represents the cost to the sponsor (pharmaceutical company) in proportion to the work volume or, in other words, the price charged by the CRO. Accordingly, the CRO will eventually generate net income or profit if high enough levels of productivity are achieved, whereby the work volume increases without an increase in the fixed costs associated with the CRO. It follows that increased productivity on the part of the CRO leads to greater income or profit. Such increased productivity may be achieved, for example, by increasing the work volume without increasing the fixed costs. Alternatively, if the CRO is able to charge a higher price for the provided services, an increased slope in the revenue line will result, whereby the net income increases at a higher rate as the work volume increases.
As mentioned, the revenue for the service provider corresponds to the outsourcing cost for the sponsor, as shown in FIG. 2. Accordingly, if no work is outsourced, no cost accrues to the sponsor. It follows that the cost of outsourcing can subsequently be compared to the cost of performing the same work with the sponsor's internal operations. However, since the sponsor's internal operation typically also functions as a fixed cost operation, it can be analyzed by the same fixed cost business model as shown in FIG. 1. As shown in FIG. 3, the revenue line (or service provider's price) from the service provider's fixed cost model corresponds to the sponsor's cost of outsourcing and, thus can be overlaid on the sponsor's fixed cost internal operation model. In light of this correspondence, the sponsor's relative cost-value of outsourcing an amount of work as compared to performing the work with internal operations (in-house) can be analyzed.
As shown in FIG. 3, the cost-value of outsourcing is defined as the difference between the cost of outsourcing a unit of work volume WV and the cost of performing the same unit of work volume WV in-house. Accordingly, where internal productivity levels are sufficiently high, the sponsor's cost of performing the unit of work volume WV in-house would be less than the cost of outsourcing, thereby resulting in a positive cost-value. It follows that, if the sponsor's internal operation is unable to achieve sufficient levels of productivity because of, for example, the inability to utilize existing capacity or poor operational efficiency, the sponsor's cost of performing the unit of work volume WV in-house would be greater than the cost of outsourcing, thereby resulting in a negative cost-value.
As such, as further shown in FIG. 3, the minimum level of work volume necessary for the sponsor's internal operation to break even occurs at the intercept of the “Total Sponsor Outsourcing Cost” line, Y=(SOC/WV)(X), and the “Total Sponsor Internal Cost” line, Y=(SVC/WV)(X)+SFC. Accordingly, the minimum necessary work volume occurs where X=SFC/((SOC−SVC)/WV). However, the derivation of this fundamental relationship leaves many open issues as to how to best apply this principle to an actual organization. For example, the sponsor must determine if the sponsor's internal operation is sufficiently sized for the routinely available work volume. In addition, the sponsor must discern which of the tasks comprising the work volume have a sufficiently low outsourcing cost to warrant outsourcing the those tasks. Further, for example, the sponsor will need to determine the maximum price to negotiate with the service provider in order to justify outsourcing tasks. Still further, the sponsor must have a method of determining the cost-value performance of its internal operations on a periodic basis in order to optimize the business process.
Thus, there exists a need for a method of applying the derived economic relationship to practical operational situations. Such a method should provide a level of precision greater than a gross approximation that uses, for example, a single variable such as periodic revenue. However, the method should be less cumbersome than other methods requiring the development of complex Work Breakdown Structures (WBS) from intimate knowledge of the complexities of the process. The method should also be readily adapted and expeditiously applied to a variety of businesses following a fixed cost model, without requiring intimate familiarity with the processes involved. Such a method should also be able to readily account for changing situations, without requiring constant monitoring of the tasks attendant to the operation's processes.